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Weak Asia-Pacific sales hamper spirits group Diageo

SUZANNE PLUNKETT/REUTERS

Diageo PLC, the world's biggest spirits group, said a postponed duty-free shipment heading for global travellers and a weak South Korean market hampered quarterly trading in its Asia Pacific region.

Diageo, maker of Johnnie Walker whisky, Smirnoff vodka and Guinness beer, makes around 14 per cent of its group net sales in the Asia-Pacific region. It said on Wednesday that sales in the region rose 2 per cent in the three months to September, helped by demand for scotch in China.

That was well below analysts' consensus forecast of an 8-per-cent rise.

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The delayed arrival of the duty-free shipment to the region, which arrived in the next quarter, was likely to have knocked 2 to 3 percentage points off growth, Shore Capital analyst Phil Carroll said, adding that this would bounce back in the next few months.

"Asia-Pacific was disappointing and South Korea and Japan are markets we will be keeping a close eye on in future, but if you are looking at the picture as a whole we are still very happy. It remains our key pick in the sector," Mr. Carroll said.

The Britain-based firm reported a 5-per-cent rise in underlying group sales for its financial first quarter, in line with analysts' forecasts – as demand for brands including Smirnoff vodka and Captain Morgan rum in the United States and across emerging markets drove business.

That was a slowdown from the 9-per-cent sales growth a year earlier.

Underlying quarterly sales in North America, which accounts for around a third of group sales, grew by 6 per cent as appetite for premium spirits increases in the region. Sales rose by 16 per cent in its Latin America and Caribbean region and 11 per cent in Africa, both ahead of forecasts.

European sales fell by 1 per cent as double-digit percentage growth in sales across Turkey, Russia and Eastern Europe was dragged down by weak trading in western and southern regions, with consumer demand in France hit by duty increases.

Underlying sales exclude the impact of acquisitions. Volume rose by 2 per cent in the period.

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The maker of Johnnie Walker whisky, Guinness beer and Tanqueray gin expects half its turnover to come from fast-growing Asian, African and Latin American markets by 2015 compared with nearly 40 per cent in its last financial year.

Diageo is in talks to acquire a stake in Indian billionaire Vijay Mallya's United Spirits Ltd., reviving an on-off courtship that would increase its presence in the world's largest whisky market.

The group, which has long coveted an expanded presence in India, is looking initially to buy a 15-per-cent stake from Mallya's UB Group, which owns about 28 per cent of United Spirits, and a further 10 per cent from other shareholders, one banker familiar with the matter told Reuters last month.

As part of its growth strategy, Diageo is also believed to be eyeing the acquisition of a minority stake in Mexican tequila maker Jose Cuervo from its owners, the Beckmann family.

Diageo's arch-rival and world No. 2 spirits group Pernod Ricard SA reports on its first quarter on Oct. 25.

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